Chapter 5

Smaller cost distortions occur when traditional systems' single indirect cost rate & the ABC rates: A. use the same total costs for computations B. are similar in proportion to each other C. are more different than alike D. use the same cost driver units

B. are similar in proportion to each other

Different products consume different proportions of manuf OVH costs bc of differences in all of the following EXCEPT: A. SP B. customers' customization specifications C. setup times D. product design

A. SP

ABC systems identify _______ costs used by products A. all B. short-term fixed C. short-term variable D. long-term fixed

A. all

To set realistic SP: A. all costs should be allocated to products B. costs should only be allocated when there is a strong cause-n-effect relationship C. only unit-level costs & batch-level costs should be allocated D. only unit-level costs should be allocated

A. all costs should be allocated to products

If products are different, then for costing purposes: A. an ABC costing system will yield more accurate cost numbers B. a simple costing system should be used C. a single indirect-cost rate should be used D. none of the above

A. an ABC costing system will yield more accurate cost numbers

When designing a costing system, it is easiest to: A. calculate total costs first & then per-unit cost B. _____________ per-unit cost first & then short-term costs C.______________ long-term costs first & then short-term costs D. ______________ short-term costs first & then long-term costs

A. calculate total costs first & then per-unit cost

A well-designed, ABC cost system helps managers make better decisions bc info derived from an ABC analysis: A. can be used to eliminate non-value-added activities B. is easy to analyze & interpret C. takes the choices & judgment challenges away from the managers D. emphasizes how managers can achieve higher sales

A. can be used to eliminate non-value-added activities

ABC can eliminate cost distortion because ABC: A. develops cost drivers that have a cause-and-effect relationship with the activities performed B. establishes multiple cost pools C. eliminates product variations D. recognizes interactions between different dept. in assigning support costs

A. develops cost drivers that have a cause-and-effect relationship with the activities performed

ABC systems: A. highlight the different levels of activities B. limit cost drivers to units of output C. allocate costs based on the overall level of activity D. generally undercost complex products

A. highlight the different levels of activities

The focus of ABC systems is on: A. long-term decisions B. short-term decisions C. make-or-buy decisions D. special-pricing decisions

A. long-term decisions

Overcosting a particular product may result in: A. loss of market share B. pricing the product too low C. operating efficiencies D. understanding total product costs

A. loss of market share

Factories producing a more varied & complex mix of products have higher costs than factories producing only a narrow range of products because: A. more variations & complexities require more activities B. they require more engineers C. they require more DL D. they buy more robotics

A. more variations & complexities require more activities

A single indirect-cost rate may distort product costs because: A. there is an assumption that all support activities affect all products B. it recognizes specific activities that are required to produce a product C. costs are not consistently recorded D. it fails to measure the correct amount of total costs

A. there is an assumption that all support activities affect all products

Product S5 & CP8 each are assigned $100 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45mins less setup time than CP8. According to an ABC system, CP8 is ______ under the traditional system. A. undercosted B. overcosted C. fairly costed D. accurately costed

A. undercosted

ABC systems create: A. 1 large cost pool B. homogenous activity-related cost pools C. activity-cost pools with a broad focus D. activity-cost pools containing many direct costs

B. homogenous activity-related cost pools

A company produces 3 products; if 1 product is overcosted then: A. 1 product is undercosted B. 1 or 2 products are undercosted C. 2 products are undercosted D. no products are undercosted

B. 1 or 2 products are undercosted

Which of the following statements about ABC is NOT true? A. ABC is useful for allocating mktg & distribution costs B. ABC is more likely to result in major differences from traditional costing systems if the firm manuf only 1 product rather than multiple products C. ABC sees to distinguish batch-level, product-sustaining, & facility-sustaining costs, especially when they are not proportionate to 1 another D. ABC differs from traditional costing systems in that products are not cross-subsidized

B. ABC is more likely to result in major differences from traditional costing systems if the firm manuf only 1 product rather than multiple products

Which of the following is a sign that an ABC system may be useful? A. There are small amounts of indirect costs B. Products make diverse demands on resources bc of differences in volume, process steps, batch size, or complexity C. Products a company is less suited to produce & sell show small profits D. Operations staff agrees with accountants about the costs of manuf & mktg products

B. Products make diverse demands on resources bc of differences in volume, process steps, batch size, or complexity

Which of the following is NOT a sign that a "smoothing out" costing system exists? A. Operations managers don't use the data originated from the cost system B. Products that a company is well suited to make & sell show large profits C. New product variations have been added, but the cost system has not been upgraded D. The company loses bids they believe were priced competitively

B. Products that a company is well suited to make & sell show large profits

Products make diverse demands on resources bc of differences in all of the following EXCEPT: A. volume B. SP C. batch size D. complexity

B. SP

It only makes sense to implement an ABC system when: A. ABC provides info to make better decisions B. its benefits exceed implementation costs C. ABC traces more costs as direct costs D. there is a strong cause-n-effect relationship bt costs in the cost pools & their cost-allocation bases

B. its benefits exceed implementation costs

Unit-level cost drivers are most appropriate as an OVH assignment base when: A. several complex products are manufactured B. only 1 product is manuf C. DL are low D. factories produce a varied mix of products

B. only 1 product is manuf

Activity-based costing is most likely to yield benefits for companies with all of the following characteristics EXCEPT: A. numerous products that consume different amounts of resources B. operations that remain fairly consistent C. a highly competitive environment, where cost control is critical D. accessible acct & info systems expertise to maintain the system

B. operations that remain fairly consistent

ABM includes decisions about all EXCEPT: A. pricing & product mix B. smoothing costs C. reducing costs D. improving processes

B. smoothing costs

Design of an ABC system requires: A. that the job bid process be redesigned B. that a cause-n-effect relationship exists between resource costs & individual activities C. an adjustment to product mix D. Both B & C are correct

B. that a cause-n-effect relationship exists between resource costs & individual activities

Using ABC rates rather than dept indirect-cost to allocate costs results in different product costs when: A. a single activity accounts for a sizable of dept costs B. there are several homogenous costs pools C. different activities have the same cost-allocation base D. different products use different resources in the same proportion

B. there are several homogenous costs pools

The use of a single indirect-cost rate is most likely to: A. undercost high-volume simple products B. undercost low-volume complex products C. undercost lower-priced products D. Both B & C are correct

B. undercost low-volume complex products

ABC assumes all costs are _______ bc over the long run mngt can adjust the amount of resources employed A. fixed B. variable C. committed D. nondiscretionary

B. variable

Put the following ABC implementations steps in order: A = Compute the allocation rates B = Compute the total cost of the products C = Identify the products that are the cost objects D = Select the cost allocation bases

C D A B

Which method of allocation probably best estimates actual OVH costs used? Why? A. single DLH cost driver bc it is best to allocate total costs uniformly to individual jobs B. Single DLH cost driver bc it is easiest to analyze & interpret C. 3 activity-cost drivers bc they best reflect the relative consumption of resources D. 3 activity-cost drivers bc product costs can be significantly cross-subsidized

C. 3 activity-cost drivers bc they best reflect the relative consumption of resources

For service organizations that bill customers at a predetermined avg rate, ABC systems can help to: A. clarify appropriate cost assignments for various service activities B. identify the profitability of various service activities C. Both A & B are correct D. NONE

C. Both A & B are correct

The goal of a properly constructed ABC system is to: A. have the most accurate cost system B. identify more indirect costs C. develop the best cost system for an economically reasonable cost D. have separate allocation rates for each dept.

C. develop the best cost system for an economically reasonable cost

ABC provides better product costs when they: A. employ more activity-cost drivers B. employ fewer ____________________________ C. identify & cost more indirect cost differences among products D. always yield more accurate product costs than traditional systems

C. identify & cost more indirect cost differences among products

Refining a cost system includes: A. classifying as many costs as indirect costs as is feasible B. creating as many cost pools as possible C. identifying the activities involved in a process D. seeking a lesser level of detail

C. identifying the activities involved in a process

Misleading cost numbers are most likely the result of misallocating: A. DM costs B. DML costs C. indirect costs D. ALL

C. indirect costs

An accelerated need for refined cost systems is due to: A. global monopolies B. rising prices C. intense competition D. a shift toward increased direct costs

C. intense competition

A manuf firm produces multiple families of products requiring various combinations of different types of parts. Of the following, the most appropriate cost driver for assigning materials handling costs to the various products is: A. DLH B. number of units produced C. number of parts used D. number of suppliers involved

C. number of parts used

Undercosting of a product is most likely to result from: A. misallocating DL costs B. underpricing the product C. overcosting another product D. overstating total product cost

C. overcosting another product

Uniformly assigning the costs of resources to cost objects when those resources are actually used in a nonuniform way is called: A. overcosting B. undercosting C. peanut-butter costing D. department costing

C. peanut-butter costing

Design costs are an example of: A. unit-level costs B. batch-level costs C. product-sustaining costs D. facility-sustaining costs

C. product-sustaining costs

According to an ABC system, S5 uses a disproportionately: A. smaller amount of unit-level costs B. larger amount of unit-level costs C. smaller amount of batch-level costs D. larger amount of batch-level costs

C. smaller amount of batch-level costs

A primary reason for assigning selling & distribution costs to products for analytical purposes is: A. to justify a varied product mix B. that controllers are required to assign all costs when valuing inventories C. that different processes, products, & customer require different quantities of selling & distribution activities D. that all indirect costs must be assigned

C. that different processes, products, & customer require different quantities of selling & distribution activities

1 department indirect-cost rate is sufficient when: A. activities relate to more than 1 level of the cost hierarchy B. product costs are significantly cross-subsidized C. the same allocation base is appropriate for all departmental activities D. it is a service dept.

C. the same allocation base is appropriate for all departmental activities

Each of the following statements is tru EXCEPT: A. traditional product costing system seek to assign all manuf costs to products B. ABC product costing systems seek to assign all manuf costs to products C. traditional product costing systems are more refined than an ABC system D. cost distortions occur when a mismatch occurs between the way indirect costs are incurred & the basis for their assignment to individual products

C. traditional product costing systems are more refined than an ABC system

With traditional costing systems, products manuf in small batches & in small annual volumes may be _____ bc batch-related & product-sustaining costs are assigned using unit-related drivers A. overcosted B. fairly costed C. undercosted D. ignored

C. undercosted

ABC systems: A. reveal activities that can eliminated B. help control nonfinancial items such as number of setup hours C. help identify new designs to reduce costs D. ALL

D. ALL

Companies use ABC system info to: A. analyze costs B. prepare budgets C. evaluate performance D. ALL

D. ALL

Greater indirect costs are associated with: A. specialized engineering drawings B. quality specifications & testing C. inventoried materials & materia control systems D. ALL

D. ALL

It is important that the product costs reflect as much of the diversity & complexity of the manuf process so that: A. product costs will reflect their relative consumption of resources B. nonvalue-added costs can be eliminated C. there is less likelihoof of cross subsidizing of product costs D. ALL

D. ALL

Logical cost allocation bases include: A. cubic feet of packages moved to measure distribution activity B. number of setups used to measure setup activity C. number of design hours to measure designing activity D. ALL

D. ALL

_________ costs support the organization as a whole A. Unit-level B. Batch-level C. Product-sustaining D. Facility-sustaining

D. Facility-sustaining

It is usually difficult to find good cause-n-effect relationships between _______ & a cost allocation base A. unit-level costs B. batch-level costs C. product-sustaining costs D. facility-sustaining costs

D. facility-sustaining costs

Product lines that produce different variations (models, styles, colors) often require specialized manuf activities that translate into: A. fewer indirect costs for each product line B. decisions to drop product variations C. a greater number of direct ML cost allocation rates D. greater OVH costs for each product line

D. greater OVH costs for each product line

The unique feature of an ABC system is the emphasis on: A. costing individual jobs B. dept indirect-cost rates C. multiple-cost pools D. individual activities

D. individual activities

The most likely example of an output unit-level cost is: A. general administrative costs B. paying suppliers for order received C. engineering costs D. machine depreciation

D. machine depreciation

ABC info: A. should be used when services place similar demands on resources B. usually results in peanut-butter costing C. will yield inaccurate cost numbers when products are similar D. may assist in improving product design & efficiency

D. may assist in improving product design & efficiency

The most likely example of a batch-level cost is: A. utility costs B. machine repairs C. product-designing costs D. setup costs

D. setup costs

Traditional cost systems distort product costs because: A. they do not know how to identify the appropriate units B. competitive pricing is ignored C. they emphasize financial accounting requirements D. the apply average support costs to each unit of product

D. the apply average support costs to each unit of product

A key reason for using an ABC system rather than a dept-costing system is because ABC assigns indirect costs: A. using broader averages B. more simply than a dept-costing system C. in a less costly manner D. to reflect differences required by different processes as well as customers

D. to reflect differences required by different processes as well as customers